More: Intel hurt by weak demand, PC maker changes
Wednesday March 4, 10:34 pm Eastern Time
SAN FRANCISCO, March 4 (Reuters) - Intel Corp's unexpected warning
that first quarter earnings will be below expectations is due to a
combination of weaker PC demand, too much inventory and manufacturing
changes at PC makers, analysts said.
Some analysts also said that the explosion of interest in the
sub-$1,000 PC may also finally be hurting Intel, because it had not
yet addressed this market with a low-cost processor.
''It's surprising but it's not surprising,'' said Stephen Dube, a
Wasserstein & Perella Securities analyst. ''The shift in manufacturing
that all the channel players are making is having a significant impact
on Intel.''
The top personal computer makers, notably Compaq Computer Corp
(CPQ - news), International Business Machines Corp (IBM - news) and
Hewlett-Packard Co (HWP - news) have all been manufacturing on a
''build-to-order'' basis and analysts said that they have also been
getting rid of inventories.
''Everyone is trying to shrink their inventory so they can be more
like Dell (Computer Corp (DELL - news)),'' Dube said, referring to
Dell's phenomenal success as a direct seller of PCs. Analysts also
said there was a lot of PC inventory in the reseller channel and PC
makers are trying to get rid of the inventory by slashing prices and
not buying so many new parts.
On Monday, Compaq's chief financial officer Earl Mason cautioned
investors at a Merrill Lynch technology conference that the business
environment, particularly in North America, was tougher than expected,
as competitors were cutting prices.
He also said that the ongoing PC industry price war, which has mostly
been fought in the consumer segment, is now moving to the relatively
price-stable commercial sector.
''Clearly, they (Compaq) are not going to be double-ordering this
quarter,'' said Rob Chaplinsky of Hambrecht & Quist. ''It's clearly
related to Compaq. The sub-$1,000 PC phenomenon is hurting ASPs
(average selling prices).''
Mark Edelstone, a Morgan Stanley analyst, said that Intel's earnings
warning was a replay of the first quarter of 1996, when PC makers had
a big buildup of inventory overhang that did not sell in the fourth
quarter holiday shopping season.
''It's exacerbated by the move of the top OEMs (original equipment
manufacturers) to build-to-order, which is trying to squeeze out
inventory in general,'' Edelstone said. On top of that, he noted Intel
is due to launch new products in April, including its Celeron chip for
the sub-$1,000 market, so PC makers want to keep their inventory of
processors very low.
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